Use this information to answer the following question. What amount must be deposited today at a 12% interest rate so that $1,200 may be withdrawn at the end of each year for three years?
A) $3,600.00
B) $3,850.28
C) $3,148.80
D) $3,366.00

Question

Use this information to answer the following question.  What amount must be deposited today at a 12% interest rate so that $1,200 may be withdrawn at the end of each year for three years?
A) $3,600.00 
B) $3,850.28 
C) $3,148.80 
D) $3,366.00

Quizplus · Accepted Answer

This can be solved using the present value of an annuity formula: 
PV = PMT * [(1 - (1 + r)^-n) / r] 
Where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of payment periods. 
Plugging in the given values: 
PV = $1,200 * [(1 - (1 + 0.12)^-3) / 0.12] 
PV = $3,148.80 
Therefore, the amount that must be deposited today is $3,148.80, which is option C.

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